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Executives

Todd Allen – Vice President, Investor Relations

Kevin Crutchfield – Chairman and CEO

Frank Wood – Chief Financial Officer

Paul Vining – President

Analysts

Brian Gamble – Simmons & Company

Andre Benjamin – Goldman Sachs

Jim Rollyson – Raymond James

Michael Dudas – Sterne, Agee

Mitesh Thakkar – FBR Capital Markets

Shneur Gershuni – UBS

David Gagliano – Barclay’s Capital

Timna Tanners – Bank of America

Curt Woodworth – Nomura Securities

Lawrence Jones – Shenkman Capital

Dave Lipschitz – CLSA

Alpha Natural Resources, Inc. (ANR) Q2 2012 Results Earnings Call August 8, 2012 10:00 AM ET

Operator

Greetings. And welcome to the Alpha Natural Resources Second Quarter 2012 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Allen, Vice President of Investor Relations for Alpha Natural Resources. Thank you, sir. You may begin.

Todd Allen

Thank you, Operator. And thank you all for participating in today’s Alpha Natural Resources’ second quarter 2012 earnings conference call. Joining me on today’s call are Kevin Crutchfield, Alpha’s Chairman and CEO, who will summarize our second quarter results and provide a brief market outlook. Frank Wood, our CFO, who will comment on Alpha’s financial results and our updated guidance. And Paul Vining, Alpha’s President, who will be available to address operational and marketing questions following our prepared remarks.

Please let me remind you that various remarks that we make on this call concerning future expectations for the company constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are made on the basis of management’s views and assumptions regarding future events and business performance as of the time the statements are made. Actual results may differ materially from those expressed or implied.

Information concerning factors that could cause actual results to differ materially from those in forward-looking statements are contained in our filings with the Securities and Exchange Commission, including on our annual report on Form 10-K and subsequently filed Form 10-Qs.

This call is being recorded, will be available for replay for a period of two weeks. The call can also be heard live on the Internet and both the replay and a downloadable podcast of the event will be archived on our website at alphanr.com for a period of three months.

With that, I’ll turn it over to Kevin.

Kevin Crutchfield

Thanks, Todd. Good morning, everybody, and thanks for joining this morning. Alpha’s second quarter was a busy one, idling operations, reducing production, amending our credit agreement, hammering out the definitive terms of the pending swap with Peabody and the PRB to access the Belle Ayr North LBA, negotiating with customers in very choppy markets and the list goes on.

There were ample opportunities for folks to become distractive. I’m proud to say we did not. Everyone in Alpha kept their eye on the ball and far from losing focus and letting the fundamental slip, we made progress on key metrics across the Board.

With regard to safety, Alpha reduced its incident rate by 13% from the previous quarter, which was itself a 17% sequential improvement over the fourth quarter. In West Virginia, the Cucumber mine, the Highland mine, the Republic Energy surface mine and our Marmet Dock all received Joseph A. Holmes safety awards during the quarter.

Now that we’ve integrated the Massey operations, we’ll soon stop calling them out as a separate piece of the business. But it’s important to note that these operations are turning the corner with nearly a 40% reduction in their incident rates since the first full quarter following the acquisition.

Clearly, our cultural integration has been a success and Running Right has again proved effective. As we discussed with you on previous call, we made Running Right a priority from the offset and I think it shows, my sincere thanks to everyone at Alpha that has made this performance possible.

With regard to cost control, we succeeded in reducing our Eastern cost by nearly $2 per ton compared to the prior quarter. This improvement was primarily attributable to substantial productivity gains throughout the organization, as well as the reduction in our inventory that had been marked down to recent market prices and we now expect full year cost in the east to be in the mid 70s.

Therefore we’ve reduced our cost of coal sales guidance slightly to a range of $74 to $78 per ton, despite our Eastern shipment mix shifting more towards metallurgical coal, which has inherently higher costs.

We’ve also taken steps to permanently reduce our overhead expenses, which are beginning to show up in cost of coal sales and we’ve adjusted our SG&A guidance for 2012 down to a range of $210 million to $225 million.

While we are on the subject of cost with regard to synergies, we’re ahead of targeted mid-year run rate of $150 million and we remain on track to achieve $220 million to $260 million in annualized recurring synergies by mid-year 2013.

While it may come as surprise in light of the current market conditions, sales in blending synergies are actually running ahead of expectations due to strong exports at a broad array of quality that facilitate blending, as well as less reliance on intermediaries and brokers, and logistical optionality with more prep plants, rail options and port outlets.

In the category of operational synergies, we’ve improved organic efficiency at many prep plants increasing met coal recovery, and after royalties and taxes, the revenue from additional met coal dropped right to the bottom line. Turnover rates at the Massey mines were in the mid-teens at the time of the transaction and are now consistently in the mid single digits.

Sourcing synergies are also ahead of initial expectations due to our ability to systematically aggregate purchasing power of three companies. While not a synergy item per se we’ve begun to rollout a maintenance initiative that has the potential to drive substantial cost savings overtime.

We are not ready to share the internal estimate of potential savings yet, but the first business unit to begin implementation seeing approximately a 5% increase in equipment uptime, which is obviously a significant productivity enhancement.

With regard to right sizing our operations, we’ve moved quickly and decisively in the first half of the year. We’ve idled several of our high cost Eastern operations, which has already begun to benefit the cost performance within our thermal portfolio in the east and the lower cost longwalls will be a larger portion of our thermal coal shipments going forward.

After these production cutbacks we’re now a 100% committed in priced for all of our thermal coal in 2012. During the quarter we priced 2.4 million tons of metallurgical coal for delivery in 2012 at average realizations of approximately $105 per ton.

And we now have less than 1 million tons of met coal left to be sold for 2012. The markets are changing rapidly and we’ll continue to assess conditions in order to match our production with anticipated demand as we look forward.

With regard to our financial position, we’ve improved our flexibility through the recent amendment of our secured credit agreement looks substantially relaxes our covenant requirements until 2015.

The amendment was unanimously approved by our lenders. Did not alter the size of our secured credit facilities, did not change our debt level or our current borrowing rates and does not change our total liquidity position. We view this as a home run for Alpha an opportune time.

After significant litigation related settlement payments in the second quarter, we ended the month of June with approximately $500 million of cash and marketable securities, and $1.6 billion of total liquidity.

We remain intently focused on free cash flow generation both in the near and long-term. To that end, we’re reducing our CapEx guidance for 2012 for the third time to a new range of $450 million and $600 million.

Alpha reported adjusted EBITDA of $186 million in the second quarter, compared with $211 million in the first quarter of 2012. Frank will discuss our financial results in a moment, but the primary reason for the sequentially lower adjusted EBITDA was a decrease in our met coal realizations from approximately $146 per ton in the first quarter to approximately $128 per ton in the second quarter.

The decrease in met realizations reflect a significant amount of lower ranked met coals that we shift in the second quarter, including roughly 600,000 tons of PCI, semi-soft and Pittsburgh Seam coal with average realization of approximately $71 per ton, as well as generally lower prices for contracts that re-priced during the quarter.

Under Paul’s guidance, we are in early stage of the building out what we expect will be a world-class international thermal platform. During the second quarter, Alpha shipped thermal cargos to India and China reflecting the successful efforts of our new outpost in Delhi and Sydney.

Additionally, we’ve recently took a significant step forward in this effort by hiring a new Senior Vice President of International Thermal Sale and Trading with extensive experience in building and running international thermal coal marketing and trading operations.

I expect most of the listeners on today’s call are all too familiar with the market conditions in United States and the fact that coal -- and what the coal producers have faced in the first half of 2012.

Starting with thermal coal, the decrease in the utility consumption has been -- has abrupted -- but has been dramatic. With coal giving up about 10% of its share U.S. electricity generation in a single year and tying with natural gas for the first time in about 40 years at roughly one-third of total generation.

However, we appeared to be pass the bottom in the drivers that led to the sharp decrease in thermal coal consumption, namely mild weather and 10-year low natural gas prices have both reversed direction. Gas is now hovering close to the $3 mark and the summer has brought widespread hit waves to much of the U.S.

As expected the combination of higher gas prices and the need for base-load generation in the Heartland has led to rapid recovery in PRB shipments. In fact, Alpha PRB shipments in July ran ahead of the 50 million ton annualized pace.

While signs of improvement are evident, the coal market -- thermal coal market in the U.S. remains weak, even after and above normal inventory withdraw in June, utility stockpiles remained at approximately 200 million tons nationwide.

There is little new contracting in current spot prices in the PRB in Central App, they are off to recent lows, remained below the typical cash cost production in both regions.

Industry-wide production cuts which are running at greater than 100 million tons annually are beginning to have an impact and we would expect the combination of increasing coal burn and less supply should drive inventories to more normal levels over the course of the next 12 months. However, today’s inventory overhang is going to take some time to correct and utility contracting for 2013 deliveries is expected to be muted at least in the near-term.

The oversupply of thermal market in the U.S. has led producers, traders and even some utilities to move coal into the seaborne market. These efforts were successful to the extent that steam coal exports in the first five months of 2012 were up nearly 80% from a year ago and total U.S. exports in April and May were on an annualized pace or roughly 150 million tons at or near current capacity.

With this success came at a price, steam coal exports inundated the market driving prices down to roughly parity with current Eastern steam coal spot pricing, levels at which a considerable portion of the production base in Eastern United States is uneconomic. Therefore export contracting has dwindled and U.S. exports are expected to slow in the back half of the year.

Alpha now expects to export approximately 4 million tons of steam coal in 2012, roughly double the 2011 levels and when the market comes in the balance, we’ll look to increase our exports in the future when it makes financial sense to do so.

The market for metallurgical coal along with relation of producers in the Eastern U.S. has been softening globally, even as domestic turmoil showing signs of improvement. It’s clear that premium benchmark quality coals are now pricing well below the third quarter benchmark, which was announced at $225 earlier this year with some spot transactions in Asia reportedly below the $200 million -- the $200 per metric ton level. This deterioration is largely the result of slowing steel production in China and ramping Australian supply as recent labor disputes approach resolution.

In light of the Eurozone debt crisis and economic slowdown, met coals are being contracted as a discount to similar quality sold into Asia and abundant supply of lower quality metallurgical coal is placing significant downward pressure on pricing.

The domestic met market has slowed slightly as capacity utilization for U.S. steel makers has dipped below 75% compared to approximately 80% earlier in the year.

In this environment Alpha has trimmed its expected metallurgical coal shipments and reduced production of some lower quality met coals that became uneconomic to produce and ship.

Alpha is and always has been significantly leveraged to the metallurgical coal market and we can ramp met shipments and make use of our leading export capacity position to capitalize on higher margin opportunities when market conditions improve.

In short, these are unprecedented and challenging times in the coal business, but in every challenge lies an opportunity.

Our ability to respond quickly to market changes, our ability to take the necessary actions, to right size our production, adjust our cost structure, maintain our leadership in the met coal business, enhance our financial flexibility will enable Alpha to advance its position as an industry leader and maximize free cash flow and shareholder return over the long-term.

With that, I’m now going to turn the call over to Frank for a discussion of our financial results and our updated guidance. Frank?

Frank Wood

Thank you, Kevin, and good morning, everyone. Coal revenues during the second quarter of 2012 were $1.6 billion versus $1.4 billion in the prior year and $1.6 billion in the first quarter of 2012.

Turning to the second quarter of 2011, the year-over-year increase was primarily due to the inclusion of Massey operations for full three months in the second quarter of 2012 versus one month in the second quarter of 2011.

During the quarter, Alpha shipped 26.8 million tons of coal, including 5.6 million tons of metallurgical coal, 11 million tons of Eastern steam coal and 10.2 million tons of Powder River Basin coal. This compares to 28.1 million tons shipped in the prior quarter, including 4.9 million tons of met, 11.5 million tons of Eastern steam and 11.8 million tons of PRB coal.

Average realization for metallurgical coal were $127.83 per ton in the second quarter, compared $176.08 in the second quarter of 2011 and $145.51 in the prior quarter.

Eastern steam coal realizations were $65.06, compared to $66.65 last year and $67.48 in the prior quarter. Realizations in the Powder River Basin were $12.96, up from $11.92 in a year ago period and flat compared to the $12.95 in the first quarter of 2012.

Excluding long-lived asset impairment and restructuring charges of $1 billion, and a goodwill impairment charge of $1.5 billion, total cost and expenses were approximately $2 billion in the second quarter, compared $1.6 billion last year and $2 billion in the first quarter of 2012.

Second quarter cost of coal sales were $1.4 billion versus $1.1 billion last year and flat compared with the first quarter. The second quarter cost of coal sales included pre-tax UBB charges of $13 million and pre-tax merger related expenses of $30 million.

Excluding these items, Alpha’s second quarter adjusted cost of coal sales in the east were $74.21 per ton, compared to $70.88 per ton in a year ago quarter and down nearly $2 per ton from the $76 in the prior quarter.

The year-over-year increase in cost of coal sale per ton in the east is primarily the result of mix shift due to the inclusion of a whole three months of legacy Massey operations in the second quarter of 2012, which decreased the proportional contributions of the longwall this year, as well as, general inflation and regulatory driven cost increases, including the impacts of MSHA and environmental compliance.

The sequential decrease is largely attributable to productivity enhancements and a reduction in Alpha’s coal inventory, which have been written down to market in previous quarters, as well as the impact of lower metallurgical coal prices on variable cost and the reduced cost of purchased coal.

Cost of coal sales in the Powder River Basin during the second quarter was $11.01 per ton, compared to $10.66 in the year ago period and $10.96 in the first quarter of 2012. The year-over-year increase was driven primarily by increased variable cost prior to sales revenues and fixed cost being spread across fewer tons.

Alpha reported a second quarter 2012 net loss of $2.2 billion or $10.14 per diluted share, which includes the impact of the previously mentioned impairment and restructuring charges totaling approximately $2.5 billion, compared with a net loss of $50 million or $0.32 per diluted share in the second quarter of 2011.

Excluding these charges and a number of other items detailed in our press release, Alpha’s second quarter 2012 adjusted net loss was $72 million or $0.33 per diluted share.

Adjusted EBITDA which excludes the impairment and restructuring charges, merger related expenses, UBB expenses and the fair -- and the change in fair value and settlement of derivative instruments was $186 million, compared to $369 million in the second quarter last year.

Capital expenditures during the second quarter were approximately $119 million, compared with the $116 million in the year ago period. Shown separately from CapEx on the cash flow statement, investing activities during the second quarter also included $36.1 million for the final annual installment payment, pertaining to our Eagle Butte lease-by-application in the Powder River Basin.

With respect to 2012 guidance, we now expect to ship between 100 million tons and 115 million tons in 2012, including between 20 million tons and 23 million tons of Eastern met, between 38 million and 44 million tons of Eastern steam and between 42 million and 48 million tons of PRB coal.

As of July, 18th, we had 86% of the midpoint of anticipated met coal shipments committed and priced at an average per ton realization of $136.06. Also as of July 18th, we had 100% of the midpoint of both our Eastern steam coal and our Powder River Basin shipment guidance committed and priced at an average per ton realization of $66.22 and $12.89 respectively.

Based on our effective cost control efforts year-to-date and our expected cost performance for the balance of the year, we are reducing Alpha’s cost of coal sales guidance in the East to a range of $74 ton to $78 per ton. Despite the cut – despite production cutbacks, that certainly will increased the relative proportion of metallurgical coal.

Guidance for cost of coal sales in the West is unchanged at $10.50 to $11.50 per ton. Based upon actions undertaken to reduce overhead costs, we are again reducing our expected selling, general and administrative expenses to a range of $210 million to $225 million for 2012. And we expect further improvements as we look beyond 2012.

We also are reducing our guidance for DD&A to a range of $1.05 billion to $1.15 billion to reflect the impact of the $1 billion long-lived asset impairment charge, which should reduce DD&A by approximately $80 million annually.

Guidance for interest expense remains unchanged at $175 million to $185 million. We are reducing our 2012 capital expenditure guidance to a range of $450 million to $600 million. At the midpoint, this represents a reduction of $250 million since the first time we provided 2012 guidance.

Alpha’s total liquidity at the end of the second quarter stood at approximately $1.6 billion including cash, cash equivalents and marketable securities of approximately $500 million. In addition to approximately $1.1 billion available under the company’s various secured credit facilities.

Cash, cash equivalents and marketable securities decreased approximately $200 million during the quarter, in part due to litigation related settlement payments incurred during the quarter. These payments are also evident in the cash flows provided by operations for the second quarter, since the payment of the settlement reduced recorded liabilities.

As Kevin pointed out, Alpha made significant progress on operating and financial performance metrics within our direct control including optimizing and right-sizing our operations, controlling costs, realizing synergies, maintaining our balance sheet strength and enhancing our financial flexibility.

We have a laid a solid foundation for the future. Alpha is not merely well positioned to weather the current storm, as market conditions improve Alpha is poised to advance its leadership position in the industry. As always and perhaps more than ever we remain focused on maximizing fee cash flow and creating shareholder value over the long-term.

Operator, we’ll now open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question comes from the line of Brian Gamble with Simmons & Company. Please proceed with your question.

Brian Gamble – Simmons & Company

Good morning, guys.

Kevin Crutchfield

Hey, Brian. Good morning.

Brian Gamble – Simmons & Company

I wanted to start on the met side. The tonnage signed during the quarter, obviously at a lower pricing you guys probably would have liked. Can you walk us through what was in that 105 and kind of what you are seeing? You mentioned the discount to the benchmark, kind of walk us through product-by-product or market-by-market is to exactly, what you are seeing today and what you expect for the remainder of 2012?

Paul Vining

Yeah. This is – this is Paul Vining. Good question. Let me approach it this way. We’ve got – I’ve got the sales into two buckets. The one bucket, I’ll say maybe was 50% of the tonnage give or take. And I’d say it’s a lower quality tonnage. Its some lower quality high-vol B, even C PCI, Pittsburgh same type met coals.

The second bucket, I’d say is our stronger met coals. Re-pricing of contracts that are typically going overseas and then some of our higher quality, higher reflectance type coals. If you look at 105 and you put it on a metric ton in the vessel type basis, you are going to come up with a price of around $155 to $160 a metric ton. And the way to look at that on average, the better coals yield is somewhere in that $180 to $190 range.

Lower quality coals were anywhere from about $110 to $130. Another way to look at it on a net ton mine basis, we had on the lower end sales for the lower quality met in the 70s and 80s for the higher quality coals more in the 130 to 150 range. So higher quality, strong high vols type A, low-vol, mid-vol – the lower qualities for either higher ash, higher sulfur, lower reflectance, part of the product even in this 3,000 to 5,000 DDPM semi-soft type coking coal heading into Asia.

Brian Gamble – Simmons & Company

And Paul, have those prices changed recently and what are your expectations for the back-half given that it seems like the 225 benchmark has degraded over the last five or six weeks.

Paul Vining

The way, we kind of look at it is we’ve taken a beating. Let’s say, we meaning the U.S. producers over the last six months and the prices have tracked accordingly. I mean it’s come through on a lot of the calls and the stats. I think the Australians are starting to see and feel some of that pain, particularly with BHP settling their labor. And they are kind of leading the way with some aggressive pricing. It appears at least in the press for September.

And I think – I mean we’re compressed in the U.S. on the lower-end qualities. There is not a lot of squeeze left in the pig and there’s a huge discount or spread or delta already between us and Australia. So, I see more of the pressure on the Australians in terms of things coming down pretty significantly here perhaps in the next several months. The impact on us will hopefully be somewhat minimal because we’ve already got a pretty big discount relative to that benchmark on the other products.

Kevin Crutchfield

And I think Brian, it is interesting to watch over time is when you think about the global cumulative cost curve and how that’s changed over time. What’s happened is the U.S. and the Western Canadians were always kind of dive into that thing, cost wise ahead of the Australians principally. They have been doing a pretty good job of catching up in terms of costs and they are up pretty significantly.

In Queensland, we continue to see capital expenditure blow outs for what it takes to install new capacity in the $300, $400, $500, $600 per annual ton of production range. They’ve got huge labor issues as we’ve seen strained in terms of supply, which has driven wages to extraordinary levels. And it would be interesting to see whether that pace of cost escalation continues and what it does to their effective dominance of global markets.

And I think, BHP and Angola in particular have been pretty open and honest about this sort of cost increases that they have incurred over the last several years. I mean they are quite significant. So, I think the instructive part of this is, how long can muted metallurgic cost stay in place.

I mean first thing, what will happen is it starts putting a lot of pressure in squeezing out the lesser qualities. The first thing you will see that begin to threaten global industry with sustained levels of pricing. It would be interesting to watch what kind of both supply response you get and price response you get over time.

Brian Gamble – Simmons & Company

Kevin, does the lower end of you met guidance includes some potential price squeeze out? Are you guys okay at current prices north of that 20 million per ton or 20 million tons per annum?

Kevin Crutchfield

Yeah. I mean I think we’re okay. Yeah. I mean we will be the first to admit, we do bring some high-vol B to the equation. But as we’ve said numerous times in the past it takes those higher quality, high ranking coals to be able to bring those to the dance.

And I do think that’s one of the unique ability that we have relative to some of our peers, because if you try to bring high-vol B wide sales, especially in this kind of environment it’s a hard thing to move. So, I think that’s when you can begin to look to our blending and optimization capabilities to see how sales perform on a relative basis. So, yeah, I think bottom line is we feel pretty comfortable with the numbers we’ve got out there.

Brian Gamble – Simmons & Company

Appreciate it. Thanks, guys.

Operator

Our next question comes from the line of Andre Benjamin with Goldman Sachs. Please proceed with your questions.

Andre Benjamin – Goldman Sachs

Good morning.

Kevin Crutchfield

Good morning, Andre.

Andre Benjamin – Goldman Sachs

First question. Alpha, took a pretty big write-down for both goodwill and long term assets this quarter. Would you say that the price paid for some of the acquisitions that, particularly in Massey that led to the write-down? It was too high due to the kind of too high price expectation at the time, or was it more due to a misassessment of the underlying asset base in terms of the cost synergies growth et cetera. And how do you think these impacts your strategy for growth and view toward acquisition going forward?

Kevin Crutchfield

Well, let me address at a high level and then, Frank can address it at a technical level as to the specifics of the goodwill impairment and long-lived asset impairment. I mean it was a relative transaction. As you recall there was a component of the transaction that was largely stock and then there was a component of the transaction that was cash. Cash is not hard to value. When it was valued that was roughly a $1 billion.

But the rest of the discussion was centered around relative values between the two companies. And clearly the world’s changed from the time we signed the deal in January of 2011 to now and that’s what is reflective, I think in these accounting related but non-cash types of adjustments. I think it’s too soon to say whether the strategic merits of the transaction will pay off.

I mean we’re a year and a month or maybe two months into this transaction. And I don’t think you can judge a transaction of this size and scale and scope over that short period of time, because the one thing we’ve seen in this industry really since about 2005 or 2006 is it’s become much more volatile and it changes rapidly.

And while we’re in a trough – to some extent right now, we believe that will change in time as well. So, what I would encourage folks to do is to think about this over the long-term and judge it over the long-term as opposed to 13 or 14 months. Frank, did you have anything you’d like to add around the technical.

Frank Wood

There is a lot of different calculations that go into both the goodwill write-off and the long-lived asset impairment. With regard to the goodwill impairment, yeah, the current state of the market, the near-term projections, where our stock price is at, those are all factors that’s factored into that calculation.

With regard to the long-lived asset impairment, it was driven primarily by the actions we’ve taken or the actions that we’re in the process of taking in terms of production levels and how we view various properties as to whether we’ll be running or won’t be running and at what levels they’ll run at into the future. So and it is difficult to really characterize the write off as belonging to any of the – belonging predominantly to any of the acquisitions that Alpha has made.

Certainly by virtue of the fact that Massey was the largest acquisition, increased the balance sheet by the most. It has a proportionally higher share. But there were also goodwill components that dated back to the Foundation merger. And even further back but I think we’re affected by that impairment as well. So, I don’t think it’s totally accurate to put it all on one acquisition.

Andre Benjamin – Goldman Sachs

I appreciate that. It’s very helpful. I guess the follow-up would be, how should we think about the potential for additional rationalization in your thermal operations? I’m not saying that this what’s you will do, but if we were to think about what would need to happen if you were to try to close additional operations, what would that mean in terms of reclamation accruals and impact to cash flow?

Kevin Crutchfield

Well, I think the first part of that question is I mean we are quite sensitive to what’s going on in the market and trying to look forward. And understand what we think one of the various scenarios that will play out over the course of next year and the year following. And we’re trying to put plans in place, so that we can move in an agile fashion in a rapidly changing marketplace.

So, number one, you can expect us to match what we think our production footprint needs to be with what we think the market can absorb and it makes good financial sense. It’s a big set asset, it has a lot of moving parts and it’s hard to move sometimes as swiftly as the market is moving. We’ll admit that but that’s our goal. When it comes to that, the second part of your question was, how do you think about reclamation?

I think we’re clearly dealing with that. I mean with respect to like a large surface mine, for example, you just don’t want to show up one day and say this mine no longer make sense and walk away midstream from that, because what you do is you trigger a large liability. So what we try to do is to improve, how can you work your way out of that in a very systematic and thoughtful fashion to minimize rising costs and still generate some revenue in the process.

So it’s an ongoing exercise. But so far we have triggered a lot of what I’d call one-time ongoing types of costs. Frank can talk specifically about that, but it’s something we are sensitive to because there are consequences in some cases of mine closures in terms of ongoing water treatment fibrosing, whatever. So it’s the differences in some cases between idling and actually closing a property.

Frank Wood

Yeah. I mean, just to follow-up a little bit. In the cost of coal sales per ton for the East, in the second quarter there was roughly a dollar that related to, roughly a dollar of the change from the first quarter related to additional costs for idle and closed mines.

So some of that is reclamation or staying current with that, but that’s not all of what it is. It’s obviously the fire bossing and the ventilation and some of the just ongoing costs that you have to maintain an operational idle status. So, I mean it’s something we are focused on. We believe we are controlling it well. We believe we have good plans in order to control in the future.

Andre Benjamin – Goldman Sachs

Thank you.

Operator

And our next comes from the line of Jim Rollyson with Raymond James. Please proceed with your questions.

Jim Rollyson – Raymond James

Good morning, guys. Kevin or maybe Paul, you did a good job of highlighting kind of the mix of coal you sold during the quarter at the $105. How does that compare to the mix of what’s left to sell for the rest of the year?

Paul Vining

Yeah. You’ve got two pieces. I think, if and I’m not looking at the numbers, we got 2 or 2.5 yet to that’s committed to non-priced and a lot of that comes down to the re-pricing for the coming quarters.

Probably the bulk of that 75% of it is when I’ll call traditional, better quality type coal 25% is probably some lower quality material. Non -- There is another 800,000 to 1 million tons of uncommitted and unpriced out there and that definitely is sort of the basement type stuff.

Jim Rollyson – Raymond James

So, net if prices where you get second half of the year stay somewhat stable at what you had in the second quarter probably going to be somewhat similar pricing is that fair?

Kevin Crutchfield

Yeah. I’d say so.

Jim Rollyson – Raymond James

Okay. Perfect. And as a follow-up. Kevin, when you think about the moves you’ve been making to develop longer-term relationships kind of overseas. Are you thinking about that more from the met side of your business or are you also trying to forge relationships on the thermal side and maybe take some of the cap out of the equation from the domestic market that otherwise maybe doesn’t fit into the domestic market over the next couple years?

Kevin Crutchfield

Yeah. I think Jim our export portfolio is pretty good in that we export from a met perspective to something like about 30 some countries on five continents. I think we always like to try and forge new relationships and build new relationships, and that is an area of focus. But this more recently move is principally focused on unleashing the value of Central App BTUs and Northern App BTUs on to the seaborne thermal platform

And we’ve got a great sales team now.

They are obviously pretty busy given what’s going on here in the U.S., why -- which is why we did what we did and I think with the addition of John and his network and his experience with Paul and Peabody and others in the past I think that will be a great addition for us over the long-term to build and forge some of those relationships and find ways to move these BTUs into markets that are desirous of them.

So, it will take some time, Rome wasn’t built in a day but I think it’s an important first step and I would characterize it as a strategic step for us.

Jim Rollyson – Raymond James

Okay. That’s helpful. Thank you, guys.

Operator

Our next question comes from the line of Michael Dudas with Sterne, Agee. Please proceed with your questions.

Michael Dudas – Sterne, Agee

Good morning, everyone.

Kevin Crutchfield

Hi, Michael.

Michael Dudas – Sterne, Agee

Kevin, could you characterize what your view is on where U.S. productive capacity is today and where it may end up at the end of the year. I do see much more attention to rationalization especially in the east on the production side and are you certainly seeing it from the fact that you’re buying less coal from independents? Are you seeing the independents struggling to survive?

Kevin Crutchfield

I think there will be two things that are going to affect the forward look with respect to future rationalizations. Number one, it was move very quickly to move a lot of coal offshore that’s possible and given where the price deck on that is now that’s going to slow. So the question is, can you now place that in the U.S. markets and I think frankly that’s going to be pretty challenging.

I think who we are from what see anyway seeing the smaller private independent producers also impacted by this and they are not impervious to this at all. So they are feeling it trying to find homes with coal and on that basis it’s a pretty challenging. So, I think and then I guess the third thing, I would say is you’re going to have contract expirations back half of the this year and early next year and producers are going to faced with the mark on that and based on what we see right now anyway that’s downward mark. So the question then becomes are you going to place those coals at our mark that’s less than where you are today. Are you going to do something else?

So I think those are the things that probably drive it and my sense is there is probably more to come. I don’t think you will see a whole lot more between now and the end of the year. But I think there will be more, it feels like we’re in -- when you think of it in terms of what’s been sort of a announced. Its not too hard to get to kind of the circa 100 million tons maybe north of that range and then on top of that what effectively has been exported, which under different circumstances probably would have been idled. You get to a much larger number.

So, I think what we hope is to see inventories begin to stable or come down first and then stabilize back in the 150 million to 160 million tons range but that might take a little while.

Michael Dudas – Sterne, Agee

And appreciate. But my follow-up is relative to your goal on free cash flow maximized generation. You’ve done quite a bit on attacking your cost -- your overhead cost in the mines et cetera, how much additional flexibility do you see in your cash outlays over the next six to nine months. And are there asset sales or opportunities for monetization that could also we may see in that time period as well?

Kevin Crutchfield

Well, I think probably the easiest way to say is look everything in this kind of environment has to be on the table and it is, clearly one of the problems we have is CapEx. I think we’ve done a good job of controlling and we think there is actually more potential going forward. Because look as the practical matter as you idle these properties you are freeing up assets that to the extent you need capital elsewhere you can redeploy those assets as opposed to buying new from [Julie or Cath] or whoever.

So, I think you can expect a fairly muted view on CapEx going forward. I mean we are not going to starve our operations, if the capital they need to prosper in the future. But it is something we are focused on. And by the same token, when you look at the parts and supplies and inventories et cetera, that exist with these properties that are have been idled that gives us kind of one-time surge that we can live out to reduce go forward parts of slides point of sale cost, at least for a while, it’s an ongoing thing, it is a one-time thing.

We continue to look at otherwise as we talked in the past through the synergy mechanisms, the sourcing opportunity being a fairly large opportunity we think as well new maintenance initiative that we’ve kicked off, we’ve got high hopes for that and believe it can actually enhance our productivity, which has the effect that it does on cost.

And obviously, we’re going to continue to look at overhead as well as SG&A to make sure that it’s appropriately sized for the prospective size of the company. So, to some extent, it’s still a work in process because it’s a dynamic and very fluid environment that we’re focused and we’re on it. We’ve always generated free cash flow and the intent is to continue doing it.

Michael Dudas – Sterne, Agee

Thanks, Kevin.

Operator

The next question comes from the line of Mitesh Thakkar with FBR Capital Markets. Please proceed with your questions.

Mitesh Thakkar – FBR Capital Markets

Good morning, gentlemen.

Kevin Crutchfield

Good morning, Mitesh.

Mitesh Thakkar – FBR Capital Markets

Just a quick question, I see a big cash outflow item in the accrued expenses line and this is for Frank. I guess this is largely related to UBB. Can you explain a little bit about it and maybe how should we think about it going forward?

Frank Wood

Yeah. Mitesh, I think you’ve correctly characterized it. It does relate to a legal settlement which include UBB. In terms of thinking about it going forward I think we’ve all given up a while back trying to predict the outcome of litigation. So, it’s a bit of crapshoot is trying to predict it and we obviously don’t want to get into much detail.

But how it relates to wrongful death and personal injury actions at UBB. I think they are nearly behind us, the statute of limitations for filing actions has expired and all the wrongful death cases are settled and I think all but a couple of them have actually been paid.

And then the two severe injury cases that have also been settled, there are some remaining cases that are in mediation, well that mediation going on currently. So I think the largest slug of it occurred in the second quarter. I do think there could be some dribbling effect into the third and maybe the fourth quarter

Kevin Crutchfield

(Inaudible) purposes and I don’t think (inaudible).

Frank Wood

Yeah.

Mitesh Thakkar – FBR Capital Markets

Yeah. Okay. Great. And just one follow-up on the cost side. It looks like cost is starting to trend down nicely. Can you just kind of put it a little bit in three buckets, how much of that cost improvement has driven by actual productivity improvements, which you mentioned? How much is the supplies and input cost decline and how much is the inventory markdown?

Frank Wood

Basically, both the productivity improvements, which I think also do include some input cost moderation and that end the effect of the inventory, the effect of writing or charging off inventory that have been markdown both about $2 a ton in the second quarter compared to the first quarter.

So in other words, they were benefitted to the second quarter compared to where we’re in the first quarter by about $2 a ton each. The other two items that we cited the global royalty and severance and the lower cost of purchase coal adds up to about another $1.40 or so. So I’ll pull those four items had an effect of in excess of $5. That was somewhat offset because our cost really changed by about $2. So that $5 was offset to some extent by higher met to steam mix, which we estimate it was about a $1.

The increase in idling close versus the first quarter, which we estimated again was about $1 and then the other roughly $1, which encompass the bunch of things was probably predominantly lesser effect on the weighted average of the longwalls in the second quarter compared to the first. Hopefully, that gives you a little bit more granularity as to what made up of changes.

Mitesh Thakkar – FBR Capital Markets

Absolutely. That’s great. Thank you, guys.

Operator

Our next question comes from the line of Shneur Gershuni with UBS. Please proceed with your questions.

Shneur Gershuni – UBS

Hi. Good morning, everyone.

Kevin Crutchfield

Good morning, Shneur.

Shneur Gershuni – UBS

My first question is kind of a follow-up to Mike’s question with respect to costs and CapEx. When I look at kind of your guidance and I look at it kind of on an average basis to achieve the low end of your guidance suggest that you can potentially average in the 73 zone towards the end of this year.

Does this suggest you’ve got a couple of more arrows in your quiver to actually help bring down the cost is that a run rate that we can kind of see the year-end exit assuming you don’t know longwall moves and so forth.

And then on the CapEx side, kind of on a same-store sales basis on what’s open versus what’s closed. There is assumption that some CapEx was spent on maintenance for some of the mines that were ultimately closed, could we expect on a same store basis that maintenance CapEx is lower next year versus this year?

Frank Wood

Vaughn Groves, he is going to answer that question.

Paul Vining

Yeah. I’ll answer. This is Paul Vining. On the cost side, there’s a lot of things moving around there and Frank gave you some specifics but I’ll drill down a little farther. I mean productivity is huge, maintenance operations availability equipment availability are huge components of driving cost.

One of the things, two or three things we’ve got going on right now. One is we’re focused on maintenance and equipment availability add some new programs, we’ve rolled out in certain areas that are yielding some very positive results that ultimately yield clean tons per sale.

At the same time, we are shifting our product mix and I have brought this up on several other calls on surface mines, last year Massey sold 12 million tons of OTC, 12.5 million tons coal which requires a lot of washing, we shifted a slug of that ton this year into the API 2 market, which is an 11, 8, 14 ash coal which is largely bypass coal coming off our surface jobs. And what that really means is you’re going to end up with lower cost structure, a higher yield, higher productivity coming off also up those surface jobs.

On the CapEx side, some of the rollback this year has been certainly the closure and the cancellation and push back on some expenditures that we had anticipated. 2013, I’ll step out there and say is going to be considerably lower than it is this year, we’ve got a huge program underway in terms of reallocation and optimization around equipment whether it’s CM, shuttle cars coming out of deep mine, surface equipment, shovels, trucks.

Its -- we’ve got a lot of equipment moving up and down the highways and ultimately it’s going to have a huge positive impact on our overall capital budget and cash flow for 2013.

Shneur Gershuni – UBS

Great. And kind of -- I’ve got two follow-ups here. But it looks like, as Frank said most of the payments have been made from the litigation and so forth. With most of the payments behind us now, is there an opportunity to collect some insurance against it any guidance on what the potential policy you have in place to ensure against this?

Frank Wood

With regard to UBB, the payments that we’ve made are all net of insurance. So, we have collected all the insurance that will be available to us in that case.

Shneur Gershuni – UBS

Okay. Great. And then one final question on the crossover discussion that was going on before and so forth. Given the discounts that are out there and everybody trying to shutdown production and so forth to manage the inventory situation, are there opportunities in your brokered coal business to pickup coal at a much steeper discount than you historically have paid, is that potentially a margin enhancing opportunity?

Paul Vining

It’s certainly out there. There’s a lot of distressed product and we have opportunistically in the last several months picked up some possible from certain people, mostly people who are exiting, shutting down or idling. But I don’t see it as a material part of our sort of margin enhancement are up -- selling our own product and mining it typically has got the best margin for us.

Shneur Gershuni – UBS

Great. Thank you very much, guys.

Operator

Our next question comes from the line of David Gagliano, Barclay’s Capital. Please proceed with your questions.

David Gagliano – Barclay’s Capital

Great. Thanks for taking my questions. Just a couple of market related questions, if we assume your second quarter volumes as the base case run rate. How much of your 11 million tons of Eastern U.S. steam production were sold, I guess and 5.6 million tons of met would be EBITDA positive at current available contract prices?

Kevin Crutchfield

I’m not sure. I understand your question. David, are you asking in the east how much of what we sold this quarter, repriced it all to market.

David Gagliano – Barclay’s Capital

If you repriced it all to market how much of that would be EBITDA positive?

Kevin Crutchfield

I’m not sure. I can answer that question. Because we’ve got cost that span a wide range on the thermal side from 40s into the 60s and also defining what today’s market is may be Paul has got a bit…

Paul Vining

I’ll answer it this way. We’re on the business of dispatching assets underwater. And we’re making adjustments whether it’s taken out of spread of equipment on the surface job or taking actions to shut down units of production underground where they are not carrying their weight and it maybe on a prospective basis relative to how we view the market in the near-term or maybe on a look back basis on the orders that were taken and where mines don’t participate on a profitable basis. So, I couldn’t give you a percentage.

Kevin Crutchfield

Well, again I go back to can you even define what the market is today. You’ve got all these notional indices out there. But you needed to move 3 million tons could you move it across like that and it doesn’t exist. So, it’s more of a notional market at the moment. And I think that notional market across all basins in the United States the vast majority of the U.S. production is underwater.

David Gagliano – Barclay’s Capital

And I think that’s exactly what I’m trying to get it. As we rollout to 2013 and tying this to your comments earlier about matching your production footprint to what the market can absorb. Is it reasonable for us to assume that you would idle your volumes down to a level such that almost every ton produced is EBITDA positive on new contracts that are signed.

Kevin Crutchfield

Let me, let me…

David Gagliano – Barclay’s Capital

How much it would take off the market if things don’t improve?

Kevin Crutchfield

Let me answer it this way. On the PRB for instance if you look at the traded market prices that are posted for our type quality, it’s prices that are under $10 and then for one of our product is probably well under $9, which is all below our cost and our intent next year is to run our mine and not sell additional product at below cost.

And I’d say the same would apply in Central App. Prices have actually jumped up on the OTC to near $70 a ton and I would wager a small portion of that -- of most of our thermal product in the Central App area is certainly cash flow positive at those numbers, but the depth of that market is very thin right now. And there is no domestic buying of any consequence in Central App.

That type of product is driven more by some overseas and some traders. So, I guess that answered your question, our intent is to operate cash flow positive everything we run. If it means we have to idle back, we’ll do so.

David Gagliano – Barclay’s Capital

Okay. A slightly different one. If -- let’s switch over to the realized pricing in the met business, if we assume, there is obviously a visibility issue on the realized price versus the benchmark prices. If you could just help us get a little more clarity there. Let’s, for example, say we assume a $180 per metric ton hard coking coal price in Europe, as of today what would that translate to ANR in terms of a weighted average realized met coal price given the differences in mix and the winding spreads that we’ve all heard about and that you mentioned earlier?

Kevin Crutchfield

There is no rule of thumb, David, because our goal is to try to make the products that are -- that market wants. For example, right now, what we’ve seen is high-vol A is held up actually really well, probably better than the mid-vol and the mid-vol blends. Low-vol is still fetching the best price but the spread between the low-vol and the high-vol A is actually not that great.

So, the name of the game is, look you can’t make low-vol, either you have it or you don’t. But some of these other products you can blend and optimize to try to create the highest point of sale price or maximize your margins and move as much as high-vol B as you can. Because still it’s better to do that than it is to try to move it into more traditional thermal markets, for example, because there are still a large arbitrage there.

But in terms of any general rule of thumb as to how a benchmark price translates onto our portfolio to come up with a translated met price would be very difficult. I’m afraid anything, that I would give you would actually misguide you in some way. And I wouldn’t want to do that.

Operator

Thank you. Our next question comes from the line of Timna Tanners with Bank of America. Please proceed with your question.

Timna Tanners – Bank of America

Most of my questions have been asked but I thought I would try to clarify two things, really more market related as well. You commented that the contract discussions either you expected to be with utilities to be muted. Can you give a little bit more detail on what you mean by that?

Kevin Crutchfield

Yeah. I’d say that and I’m talking about ‘13 mainly. There are some contracting discussions going on in the Powder River Basin and the pricing that we’re seeing is not particularly interesting to us at this time. In the Central App area because of stockpiles and some decisions customers have made about either substitution of product, met gas use.

We don’t expect there to be a whole lot of purchases of Central App thermal coal, new purchases for delivery in 2013. And when it comes to Northern App, it’s been fairly flat, fairly quite. Inventories are still pretty healthy and it’s probably the best piece of evidence is CONSOL had a fairly big failures at Enlow and Bailey on their conveyers.

The markets been sort of agnostic in terms of how it will respond. Normally, we’d get rash call and panic on part of the buyers but it’s been fairly quiet. So we’re not expecting a big onslaught of purchases for 2013 delivery beyond what we’ve already got contracted and we are going to be focused on some export opportunities.

Timna Tanners – Bank of America

When the export market recovers, right. So kind of watching that and waiting and seeing when inventory is back. How’s that going to progress?

Kevin Crutchfield

If you look at 2013, API tool right now, it’s actually probably about $4 discount to the OTC. So you are actually up into the -- somewhere in the low 60s on a quality adjusted basis, 11814 ash coming off surface jobs. You are getting to a point where it’s starting to look interesting again. So, whenever recovery takes place, it doesn’t have to be a whole lot more.

Timna Tanners – Bank of America

Okay. That’s helpful. And then, we’ve been hearing a lot obviously about the met coal market being quite sparse in terms of trading. What’s your intel telling you on Asia in terms of what is going to take for the market to stabilize? It’s been in free fall as commented. So, I mean, is there any insights that you have from your sources telling you about what might help the market stabilize or what they are watching for?

Kevin Crutchfield

I think right now, it’s going to be driven by the Australians. You’ve 160 million tons coming out of Queensland into a 280 million ton market. They are the jolly green giant. And right now, it’s all about BHP and supply decisions that are made by Anglo and Xstrata and BHP and some of the other major players down under.

So it’s a little bit demand, but lot of it is the supplier response coming out of the major producing country.

Timna Tanners – Bank of America

Got you. All right. Thanks.

Operator

Our next question comes from the line of Curt Woodworth with Nomura Securities. Please proceed with your questions.

Curt Woodworth – Nomura Securities

Hi. Good morning.

Kevin Crutchfield

Hey, Curt.

Curt Woodworth – Nomura Securities

In terms of, I guess, maybe asking, kind of, David’s question other way on the high-vol B side with pricing for some of this in the low 70s or even 80s maybe for a decent fee. I mean, it seems like that would be near your cost or potentially even below your cost to produce that.

So can you give us a sense for what your ability is to either kind of blend that material up with lower vol to have a super blend. And do you see the risk that you’re going to have to take more of that production down in the back half of the year or potentially some -- the contracts that you’ve had that have supported that production volumes start to roll off?

Paul Vining

Yeah. I’d say, I’ll answer it this way. The margins are positive but they’re summing up in. I mean it’s definitely what I would call margin compression which means there’s not a whole lot of flex and if it gets pushed much farther, we’ll probably end up dropping out to fuel those tons.

A couple of comments though on some of the stuff sold in the low 70s, I mean we’re talking marginal semi-soft coking coal low fluidity 10 to 12 ash. We’re pulling some of our surface jobs as much as 30% or 40% of the product coming off some of surface jobs and some of that on a law basis is met coal, we’re shipping into the export market.

So, you only got to think of it in terms of bifurcation of deep and surface, washed and raw. And we actually have some pretty competitive products that we make money on, but you got to segregate them. And you’ve got to have a market for it ultimately. And whether or not the Australians come out swinging and take the price down another $10 or $20 in Asia on those products, we’ll have to wait and see.

Kevin Crutchfield

The other way we’d commented this in the past to Curt is, we think of the portfolio is kind of the 70%, 30% circa portfolio with 70% representing the higher quality material and then the 30% is the fungible piece that you try to work with and massage into the marketplace.

And as you can see in the past given the guidance, we’ve already reacted around some of that and taken some of that offline already. I mean it’s subject to FERC review, but the plus point hit a lot of cases. It’s still better than the alternative. And it still generates margin and makes sense to do so.

Curt Woodworth – Nomura Securities

Okay. That’s helpful. And then just on the outlook for the eastern steam business, seems like the first half of the year, you are actually from a sales perspective running basically at a run rate above the high end of your guidance range. So are you assuming that either exports fall off in the back half of the year or you have some potential thermal contracts expiring that you don’t expect to be renewed in terms of the guidance change?

Kevin Crutchfield

I’d say that the exports probably -- I’d say a month or two ago, I had a fairly negative view. It started to comeback a little bit. But it’s a little bullish -- I mean bearish. There is no domestic activity. The API too continues to call back. There is an opportunity to actually have some little bit of positive news.

Curt Woodworth – Nomura Securities

Just one last one on the met export front is there any seasonality where you would say that you did 4 million tons this quarter. You should decline into the third quarter and then you would get, maybe some snap back in the fourth quarter. Just trying to think about from a modeling perspective?

Kevin Crutchfield

The biggest seasonality is the lakes where we ship into Canada and virtually there is no shipments in January through March. And you ship 12 months worth of coal during nine months to that cast of customers.

We’ve got some customers up in Scandinavia that are really good customers that are heavy outside of couple of winter months. But there is some shipping issues, but beyond that it’s fairly straight forward.

Curt Woodworth – Nomura Securities

Okay. Great. Thank you.

Operator

Our next question comes from the line of Lawrence Jones with Shenkman Capital.

Lawrence Jones – Shenkman Capital

Frank, I was hoping you could give us an exact amount for the legal settlements, the cash outflow in the second quarter.

Frank Wood

Sorry, Lawrence I cannot do that. Based on the confidentiality that’s part of the mediation orders.

Lawrence Jones – Shenkman Capital

Okay. In May, you said publicly, that you are expecting $150 million cash outflow in the next three to four months? Another $75 million per year over the next two years for a legal settlements. Can you give us an update on that?

Frank Wood

I really don’t have an update to give you on that at this point.

Lawrence Jones – Shenkman Capital

Okay. I can understand to be frank. I can understand the confidentiality concerns, maybe on the credit analysis, but $150 million to $175 million cash outflows materials. So it’s just a little surprising and I say this respectfully that we can’t get that type of disclosure and you used the term earlier about dribble further?

Frank Wood

One of the things I’m struggling with a little bit long. So I’m sorry to interrupt you. One of the things that was going -- I don’t recall the specificity that you just stated. So that’s the reason I’m reacting somewhat the way I’m.

Lawrence Jones – Shenkman Capital

Put another way, when you referenced the dribbling of cash over the next two quarters. Is this something $25 million a quarter or $75 million a quarter. I just need some guidance as to I expected your cash balance to be $700 million at the end of June and it’s $500 million that’s material?

Frank Wood

I think I’ve given you all the specificity I can given the legal constraints we are under. So I understand that you want more information but I really can’t furnish it.

Lawrence Jones – Shenkman Capital

Okay. Thank you.

Operator

Our final question comes from the line of Dave Lipschitz with CLSA.

Dave Lipschitz – CLSA

Just maybe can you answer in terms of the liquidity -- in terms of the second half of the year, do you expect to be cash flow positive with any type of working capital help or anything like that?

Kevin Crutchfield

Yeah. We don’t give specific guidance on cash flow expectations, but obviously historically we’ve been cash flow positive in most periods. I mean, the second quarter being an exception to that. So we would expect to be very focused on returning to cash flow positive reporting periods.

Frank Wood

And I think based on the actions that we have taken and we’ll continue to take. That continues to be the number one goal and that will be our goal is to continue to generate cash as we all have. So we’re very focused on it.

Dave Lipschitz – CLSA

Okay. Thank you.

Operator

Mr. Crutchfield, we have reached the end of the question-and-answer session. I will now turn the floor back over to you for closing comments.

Kevin Crutchfield

Okay. Thank you everyone for attending the call. And we apologize for running over a little bit, but we wanted to try to take as many questions as possible. Thank you for the interest in Alpha, and we’ll continue to keep you posted as time progresses. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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